Report: Loser-pay rule would curb frivolous lawsuits

By Chris Rizo and Ann Knef | Dec 4, 2008

Marie Gryphon

Ed Murnane

NEW YORK - Forcing losers in lawsuits to pay the winner would help stem the tide of frivolous lawsuits flooding many U.S. jurisdictions, a report released Tuesday said.

The report by the conservative Manhattan Institute -- "Greater Justice, Lower Cost: How a 'Loser Pays' Rule Would Improve the American Legal System" -- says making lawsuit losers pay the winner's legal expenses would add some equality to the U.S. legal landscape.

A so-called loser-pays system would reduce the number of low-merit lawsuits, encourage potential defendants to comply with the law and would deter "ordinary low-merit suits," the report said.
Ed Murnane, president of the Illinois Civil Justice League, said he would be in favor of "anything" that cuts down the cost of litigation.

He said the loser-pays concept has worked in many parts of the world but the legal industry in the United States has opposed it because it would reduce the cost and volume of litigation.

"It is not only a savings to defendants – who may or may not win or lose the case – but to taxpayers because if it cuts down the volume of litigation, it could cut the cost of the court system, or at least keep it from growing," Murnane said.

According to the report, the number of low-merit lawsuits would likely slide under a loser-pay scheme, but low-merit class action filings would not likely fall because the risk of enormous losses is the primary source of pressure on defendants to settle.

"A loser pays system could be an important part of a larger effort to reduce litigation cost, discourage meritless lawsuits, and better align tort law with its goal of deterring socially harmful conduct.
The rest of the world uses the loser pays or 'English rule' system," the report said. "It's time the United States adopts one as well."

The report -- written by Marie Gryphon, a senior fellow at the Manhattan Institute's Center for Legal Policy -- found that the costs of tort litigation reached $247 billion in 2006, which represents $825 per person in the United States, and that U.S. tort costs are double the costs in Germany and more than three times the cost in France or Britain.

"Thoughtful reforms in state and federal law can bring our civil justice system into sync with the rest of the world by replacing the American rule for attorneys' fees with a loser-pays system," the report said.

Alaska is the only state that has a loser-pays rule, which is credited for keeping tort claims in the state to just 5 percent of litigation there, or half the national average.

Florida, between 1980 and 1985, had a loser-pays rule that applied exclusively to medical-malpractice cases. That law was ultimately jettisoned amid criticism.

"The integrity of our legal system is under assault. Establishing loser-pays rules and other tort reforms can help restore citizens' faith in the bedrock of society - justice, fairness and the rule of law," former New York Mayor Rudy Giuliani wrote in the report's forward.

While Murnane favors a loser-pays system, he said the concept is "180 degrees opposite – the exact opposite – of what the Illinois Supreme Court ruled in the Ready case last week."

In the opinion of Ready v. United, the court ruled by a 4-2 majority to exclude settled defendents as tortfeasors when apportioning damages under Illinois' joint and several liability provision.

"Our court now encourages deep pocket pays rather than loser pays," Murnane said. "Our court has ruled that it's OK for trial lawyers to go after the wealthiest defendant, not necessarily the defendant most at fault."

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